Zephyr Teachout provides her Round-Two comments on the draft Merger Guidelines.

To read more from the ProMarket Merger Guidelines Symposium, please see here.

The purpose of the draft Merger Guidelines is to realign antitrust enforcement practices with the law and to publicly clarify how the Federal Trade Commission and Department of Justice Antitrust Division (the Agencies) will apply the law as it interacts with new technological developments and market realities. That realignment reveals a notable absence: the draft Guidelines appear to wholly reject the heretofore governing consumer welfare standard and its variants. As such, we can see the draft Merger Guidelines as serving the death knell on a troubled enforcement approach. The reasons why enforcers abandoned the consumer welfare standard as a guiding principle are manifold.

As President Joe Biden’s antitrust enforcers have repeatedly reminded us, the antitrust laws, of which the laws governing mergers are a part, are designed to promote wealth and a thriving economy, to protect workers and consumers from dominant businesses extracting wealth from them, to protect against fragile socioeconomic systems, and to preserve economic liberty. All of these goals can be found in the debates and discussions leading to the antitrust laws which the DOJ and FTC are charged with enforcing. The language of the laws is the grammar of competition, which serves all of these purposes, not to the exclusion of each other.

In the 1980s, enforcement agencies elevated one of these goals—consumer welfare—and turned that goal into a standard by which they would determine whether or not to block a merger. The advocates of the resulting consumer welfare standard were largely unsuccessful in convincing many that the statutory history backed up their claim, but they were extremely successful in changing the language, culture, and habits of the antitrust enforcement agencies and the vast majority of practitioners. The consumer welfare standard, they argued, had the benefit of administrability and certainty. Moreover, everyone should agree on the general desirability of maximizing output and reducing prices, so even if there were plural reasons for another standard, such as the “lessen competition” standard articulated in the Clayton Act, consumer welfare was the only one that could serve as a measurable standard. 

As a result, enforcers started equating a critical subsidiary goal of competition with all of competition. This is essentially the argument of Carl Shapiro in this symposium. Shapiro writes that “concerns about mergers that ‘may substantially lessen competition or tend to create a monopoly’ are really about the risk of losing what competition delivers to real people, such as lower prices, better products, and greater innovation.” Shapiro, in describing price and output as the whole of competition, diverges from the law and the Supreme Court, which as recently as 2015 noted the central role of competition in protecting economic liberty.

While there is a lively debate amongst consumer welfare adherents about the relevant welfares (e.g. price, innovation, efficiency, variety, etc.), methods of measuring, and other ancillary effects, for the most part the consumer welfare standard accepted the view that case-by-case welfare predictions of mergers was administrable and regulable, and that econometric models served as reliable science. Relatedly, most antitrust scholars and practitioners, like Herbert Hovenkamp, believe that the home of antitrust policy is microeconomic, not macroeconomic.

There are two main reasons why the new Guidelines put the knife in the consumer welfare standard as a guiding principle for enforcers. The first is that which I focused on in my Round I comments: the Guidelines reflect law. As Eleanor Fox notes, these Guidelines return antitrust to the world of law, where statutes are passed by democratic majorities and faithfully enforced, away from the world of neoclassical economics, where statutory history and purpose lie second to “modern economic thinking.“

The terms of the laws at issue are flexible only to a point; they require the Agencies to consider harm to competition; no amount of wishing can erase those words and replace them with the more meager and yet more complex language of “consumer welfare.” Eric Posner’s elegant statement in his Round II comments bears repeating, because it is so simple and damning and gets to the root of the strange debate around words and purposes:

Legal conventions forbid courts to evade a statute by replacing a legislative command with a command to achieve the assumed legislative purpose. Otherwise, every statute becomes a guessing game as well as an invitation to disregard the goals of the legislators who brokered deals. Verbal tics and weird circumlocutions replace plain language.

Given the public’s well-founded anxiety that big companies, in particular, don’t have to abide by the same laws as everyone else, reestablishing the key statutory language and bases for the Guidelines is especially important.

But while adherence to the rule of law is critical, and a sufficient justification for such a revision, it doesn’t provide a full explanation for why Biden chose to rock the boat, given the ease of looking the other way. Why did these Merger Guidelines emerge now? In these Round II comments, I want to focus on the context in which these Guidelines arose, a context created neither by FTC Chair Lina Khan, nor Assistant Attorney General Jonathan Kanter, nor former Special Assistant to the President for Technology or Competition Tim Wu, nor President Biden himself. The most important context of the new Guidelines is that the former Guidelines since the 1982 iteration, underpinned by a consumer welfare standard approach to merger review, failed.

They failed on administrability, they failed to keep consumer prices low, and they failed to protect workers from exploitation by dominant firms. The consumer welfare standard failed on its own terms, and the prior Guidelines failed to protect economic liberty, promote a thriving economy in every region, and ensure socioeconomic resiliency. Biden chose enforcers who reflected a willingness to meet the broad public demand for clear, stronger enforcement, and the broad public demand is a direct result of the consumer welfare standard’s failure.

In brief, the consumer welfare standard failed in multiple critical ways, including ways which justified the adoption of the standard in the first place. The following seven critiques are intertwined and each contributes to and exacerbates the others. Defenders of the consumer welfare standard fail because they think antitrust enforcement and the economy can be reduced to a multitude of isolated markets or goals. But to artificially abridge the scope of antitrust or treat mergers in isolation from their impact on the broader economy not only ignores the law but macroeconomic realities, too. Defenders of the consumer welfare standard can no longer cherry-pick their markets and case studies but need to answer to the economy as a whole and how it has failed everyone but large businesses. These critiques include:

1. The consumer welfare standard failed to be administrable. The appeal of the consumer welfare standard was that case-by-case determinations could be made on objective assessments about the future. In practice, we have learned that humans cannot precisely quantify effects in particular cases. Antitrust enforcement became a state-sanctioned battle of economic simulations. The consumer welfare standard gave economists the role of experts assigned to determine the specific welfare impacts of a specific merger in the middle of a wide-ranging, constantly changing sea of economic and political life. No one can reliably predict what the price-reducing impacts of a merger will be, so instead of administrability, the consumer welfare standard has been bedeviled by “false precision and made-up numbers.”  As Cristina Caffarra wrote, “We are measuring at most distant proxies, like market shares, instead of understanding how assets and capabilities are being combined and reconfigured.”

2. The consumer welfare standard was too costly. Inasmuch as there are administrable, measurable elements in the orbit of the consumer welfare standard, they not only serve as unreliable proxies, but proxies that are extremely costly to produce and assess. Enforcement embodied in a battle of econometric quantification experts runs up costs into the tens of millions, giving the lie to the standard being actually administrable with government budgets. 

3. The consumer welfare standard failed as microeconomic policy. After the T-Mobile Sprint merger, prices for mobile services went up and continue to rise. This is just one example of how the Agencies guided by a vision of protecting against market power pricing failed to meet even their own standards, as the work of John Kwoka has shown. His sweeping merger retrospective study, compiling and analyzing all the high-quality merger retrospectives in the literature, showed that mergers that were investigated but cleared led to price increases of over 7%. Some price increases were even more substantial. Efforts to isolate which features of the mergers made them more likely to lead to price effects have been unsuccessful so far.

4. The consumer welfare standard failed as macroeconomic policy. Markups were stable for the 25 years before 1980, but since the 1980s, markups have gone from 21% above the cost of production to 61% above cost. It appears that a relatively small number of firms are responsible for that change, and there is strong evidence of market power and increasing concentration driving the extractive shift from consumers and workers to the firms.

5. The consumer welfare standard failed to protect workers from wage and benefit exploitation. At its passage in 1914, the Clayton Act was hailed as a “charter of industrial freedom.” The consumer welfare standard abandoned this key task to protect workers and workers’ rights. For the 40 years between 1980 and 2020, the average workers incomes grew much slower than productivity. In the last 20 years, the decline of the share of GDP going to labor has been well-documented. A recent Treasury report shows that the lack of competition has caused workers to earn 20% less than what they would have earned in open, competitive markets. Moreover, concentrated markets allow employers to require employees to agree to degraded working conditions.

6. The consumer welfare standard led to concentrated Big Tech. The consumer welfare standard does not possess the economic grammar or sophistication to regulate a digital economy where anticompetitive abuses do not come in the form of prices or output. The government is now involved in several major trials and investigations into abuses of power by Big Tech companies, abuses which were easier to both perpetuate and hide because of the consumer welfare standard. In waving through all 240 Google (Alphabet) acquisitions between 2001 and 2020, the enforcement agencies remade the digital economy in a top-heavy way, and now, after the fact, we are forced to deal with the aftermath: a centralized communication infrastructure with the power to shape thought and commerce and the incentives to abuse that power. The extraordinary Cicilline report on Big Tech lays out the scope of the problem, but the 1982 Merger Guidelines, grounded in consumer welfare, is a key cause of the problems, and the public—across political divides—is unhappy about it.

7. The consumer welfare standard failed to keep the prices down. Finally, the last two years of rising prices put the final knife in the consumer welfare standard. During this time, every American has experienced grocery store prices skyrocket and stay high all the while corporate profitability has increased. Whether in meat, energy, or toiletries, big companies have taken advantage of shocks to the economy to increase prices and profitability, something they should not have been able to do if we had competitive markets. The work of Isabella Weber has shown the prevalence of what she calls “Greedlation,” the exploitation of the market shocks of Covid and the invasion of Ukraine by dominant firms to pad their profit margins. Inasmuch as the Consumer Welfare Standard had one job, it failed even at that.  


In the runup to publishing these draft Guidelines, the FTC and DOJ engaged in listening sessions with farmers, workers, small business owners, pharmacists, and others. In those listening sessions, they heard story after story of how mergers hurt these Americans. Farmers talked about how middlemen paid them less while charging consumers more after mergers made it harder to negotiate.

Those conversations were about economic freedom, not just dollars and cents. Economic freedom doesn’t live under the lamppost, and is harder to measure than output, but that doesn’t mean that people don’t experience it and care deeply about it. Industry-deep dives, like those of Christopher Leonard and Veena Dubal show how much the loss of autonomy means to people. Polling across the board shows that people think big corporations have far too much political power.

The consumer welfare standard failed at all these things, and it failed to be legible to the public and thus responsive to democratic demands. At first blush, the consumer welfare standard should be one of the most legible extensions of antitrust policy and case law. Voters easily understand the idea that the costs of goods and services should not go up and that quality should be high. However, the consumer welfare standard fed the growth of the inaccessible grammar of HHIs and GUPPIs, language that is impenetrable for a farmer, worker, or taxi driver. If you can’t explain what you are doing in enforcement, it ceases to be law-like, because law is fundamentally a public act, not a private one. 

The Chicago School of economics, which promulgated the consumer welfare standard and helped embed it in antitrust law and enforcement, had one job: it had 40 years for proof of concept, and it failed. Prices are now both high and volatile, wages are low, and work is precarious. Antitrust doesn’t have the whole task of preventing these pathologies, but it is clear that the regime that has been in place since was inadequate to the task.

Antitrust laws were, and are, macroeconomic and macro-democratic in nature, and the democratically passed laws represent a public, democratic determination of the kind of rules that the American society wants. Consumer welfare standard enforcers ignored the text and purposes of merger law to pursue an ideological vision of efficiency which they thought the public would cheer; it did not. 

Finally, the nature of the failures helps explain why the Biden Guidelines are more prophylactic, more tied to legal language, and more specific; instead of continuing to hunt for case-by-case adherence to any standard, the Guidelines move in the direction of law, away from peering into the future with expensive expert battles. As such, these Guidelines will do a far better job of protecting the very thing that consumer welfare standard advocates desire (quality, price, innovation), as well as the economic and political liberties that the statutes’ drafters also wanted to protect.  

Author Disclosure: I have no financial involvements, nor am I consulting or accepting remuneration, from any party that may have an interest in the draft Merger Guidelines.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.